newbie ?: does my new accountant know what she's talking about?

Question

Newb question here. I read the BP posts and have been keeping track of the time I spend managing my two duplexes, both bought this year, because I read there was a tax reason to do so. When I recently met with an accountant (first time, have always done my own taxes) I mentioned this. She said I didn't need to that. She emailed me this: "If you have a profit on rentals, you will receive the qualified business income deduction, but if you want to, you can track your time just in case the IRS comes out with something new that is retroactive, you would have it." I thought to get safe harbor I have to track to my time. (I confess I don't understand if safe harbor is different from her "qualified business income deduction.") So do I need to be tracking my time to get my max deductions, assuming I have profit?

My secondary question is does this accountant know what she's talking about because I surely do not.

Thank you all for your help! Love this forum!

Jill

Wayne Brooks · Answer

As far as I know, the only reason to track your time is to try and show 750 hours/yr so you could deduct any net Losses from your real estate against other income.No reason to track your time if your properties don’t show a loss that you’d want to use against other non passive income.

Eamonn McElroy · Answer

If you want to claim you are a real estate professional, you will need contemporaneous records detailing time spent. If you are selected for examination the IRS will ask for them.Are you subject to the Net Investment Income Tax (NIIT)? If you are you have an even more compelling reason to try to qualify as a real estate professional and make the rental taxable income non-passive.It seems your accountant is focused on the QBID (IRC Sec 199A) while you are hinting at and asking about the passive activity loss rules (IRC Sec 469).For IRC SEc 199A, you do need contemporaneous records if you are claiming the safe harbor for the 2019 and forward tax years. You do not need contemporaneous records for the 2018 tax year.

Bill B. · Answer

@Jill CurranAs a non-accountant my answer is no. I don’t have an llc and I’m pretty sure my cpa talked about the new deduction accounting for a little bit of my refund.

Jill Curran · Answer

Related question: do I need to have a sole proprietorship to get the QBI deduction? I don't have my properties in an LLC because my husband has an umbrella policy through his job. Thank you all!Jill

Jill Curran · Answer

Sage advice! Thank you Eamonn.

Eamonn McElroy · Answer

@Jill CurranJill, I think you need to go back to your accountant for a deep convo.You're conflating the passive activity loss rules (IRC Sec 469) with the brand new 20% QBI deduction (IRC Sec 199A).Either one of the following is happening:(1) Your accountant is confused by what you're asking is giving you the answer to a question you haven't asked.(2) Your accountant isn't taking the time to explain things clearly and make sure you're both on the same page.(3) Your accountant is lacking in some areas of tax law.A deep and long convo should clear everything up or give you the confidence to switch accountants if your current one can't get you comfortable and explain the passive activity loss rules in layman's terms.

Jill Curran · Answer

I'm still confused. It is possible I will have a loss that I think I can count against my husband's W2 wages, yes? I thought I was trying to reach 250 hours, not 750. My rentals are for profit, so I'm surely conducting a trade/business. Should I stop tracking my time? Does my accountant sound like she's got it right?

Curt Riffel · Answer

We, at our firm, attached a Notice 2019-07 to the tax returns we filed for 2018 related to Section 199A Trade or Business Safe Harbor: Rental Real Estate.

Steven Hamilton II · Answer

Ignore the safe harbor. It is a waste of your attention. You want to be considered a trade or business which is much easier to do than to meet the safe harbor.

Christopher Smith · Answer

The requirement is that you be conducting a "trade or business" as that term is established under IRC 162. This is inherently a very subjective determination based upon various factors, therefore it requires some level of judgement to be applied but doesn't specifically require tracking your time.Alternatively, for those who would prefer a more objective standard in satisfying the 199A requirement the Govt has provided what amounts to something of a safe harbor that if you choose to rely upon it does require you to specifically track your time.I am tracking my time on my activities, but I really don't need to since I believe I can easily meet the IRC 162 definition of "trade or business". I will have the tracked time as a back up just in case.